California witnessed a tremendous upsurge in new laws, which took effect January 1, 2004, affecting employers and employees. Former Governor Davis signed 909 bills in year 2003 alone; this article summarizes some of the new state laws impacting businesses in California:

Mandatory Health Coverage
California law did not provide health care coverage for all residents and did not require employers to provide health care coverage for employees and dependents, other than coverage provided as part of the workers’ compensation system for work-related injuries. Year 2004 changes all this. The Health Insurance Act of 2003 requires that employers provide health insurance to employees or make contributions to “State Health Purchasing Program,” that will obtain insurance. The contributions will be made via Employment Development Department.
Employers with 200 or more California employees must pay at least 80 percent of the health insurance premiums for those workers and their dependents by January 1, 2006 or contribute amounts yet to be determined to the State Health Purchasing Program. Employers with 20 to 199 employees working in the state must provide such insurance benefits or make payments to the Program, for employees but not their dependents, by January 1, 2007. However, employers with between 20 and 49 employees in the state need not comply unless the Legislature authorizes a tax credit that equals 20 percent of the employer’s net cost of the fee. Employees with fewer than 20 employees in California are exempt. To be eligible, employees must work at least 100 hours per month and have worked for the employer for three months.

Employees as Private Attorneys General
Under the new “Labor Code Private Attorneys General Act of 2004,” aggrieved employees can file lawsuits against employers who violate any provision of the California Labor Code, excluding matters governed by the workers’ compensation system, and to recover attorneys’ fees and receive twenty five percent of the civil penalties. Prior to this law, civil penalties for violations of the Labor Code were assessed and collected by the Labor and Workforce Development Agency and its subordinate agencies.

If the Labor Code provision at issue does not set forth a civil penalty, and the employer has one or more employees at the time of the violation, the Act imposes a civil penalty of $100 for each aggrieved employee per pay period for the first violation and $200 for each aggrieved employee per pay period for each subsequent violation.

This law in other words empowers employees to enforce compliance of the California Labor Code by employers. The penalties envisioned under this new law are in addition to existing remedies.

Penalties Increased for Failing to Pay Wages Due or for Unlawfully Withholding Wages
Under prior law, if an employer failed to pay wages or unlawfully withheld wages, the penalty for a first violation was $50, and the penalty for subsequent or willful or intentional violations was $100 and the penalty recovered was placed in the General Fund. Effective January 1, 2004, the penalties are increased to $100 for the first violation and $200 for subsequent or willful or intentional violations. Twelve-and-half percent of the penalty would be placed in a fund with the Labor and Workforce Development Agency to educate employers about state labor laws, and the remainder would be placed in the General Fund.

Employer Liability for Sexual Harassment by Non-Employees
Employers are now liable for sexual harassment of their employees or contractors providing services in the workplace, committed by non-employees including customers and suppliers, if the employer, or its agents or supervisors, knows or should have known of the harassment and fails to take immediate and appropriate corrective action. In evaluating such claims, the court must consider the extent to which the employer has control over, and any legal responsibility for, the conduct of the non-employee harasser.

Protection for Employee Whistleblowers
Beginning January 1, 2004, employers are prohibited from retaliating against an employee for disclosing information to a governmental or law enforcement agency, if the employee has reasonable cause to believe that the information discloses a violation of a state or federal statute or regulation. The law establishes a hotline within the State Attorney General’s office for employees to call, further requires employers to prominently display, in lettering larger than size 14 pica type, a list of employee rights and responsibilities under the statute, including the telephone number of the whistleblower hotline, (800) 952-5225.

New Withholdings for Family Temporary Disability Insurance (FTDI)
California becomes the first state in the nation to establish FTDI (at employees cost), providing up to six weeks of wage replacement benefits in a 12-month period to workers who take time off to care for a seriously ill child, spouse, parent or domestic partner, or to bond with a new child. This benefit is available for leaves taken on or after July 1, 2004.

However, the benefit is funded through an increase in the amount contributed by employees to the State Disability Insurance (SDI) Fund starting Jan. 1, 2004. That increase is 0.08 percent for 2004 and 2005. FTDI will apply to all employers, regardless of the number of employees. This paid family leave is available to any employee, regardless of the period of time employed with the current employer.

New Limitations on Absentee Reduction Policies
Under prior law, employers who provided sick leave must have allowed employees to use the sick leave the employee would accrue in a six-month period each year to take care of an ill child, parent, spouse or domestic partner. New law makes it automatically illegal for an employer to count these “protected” sick leave days as an absence that may lead to discipline, demotion, discharge or suspension. Paid sick leave under this new statute encompasses any paid time off, including vacation days and personal days where the employer’s policy allows employees to use that time off to care for an employee’s personal illness or injury.

New Law Imposes Duty to “WARN” on Employers of 75 or More
Federal law (Worker Adjustment and Retraining Notification Act or WARN) requires that businesses who employ 100 or more employees must give 60 days’ notice of any plant closing or mass layoff that will affect 50 or more employees at a single site within any 90-day period. California law now requires that employers of 75 or more employees provide 60 days’ written notice prior to a “mass layoff,” “relocation,” or “termination” of business that will affect 50 or more employees within a 30-day period.

Under the new California law, a parent corporation is included in the definition of “employer” as to any covered establishment and is thus obligated to ensure that its qualifying subsidiaries comply with the new law regarding mass layoffs.

Other Statutes
Employers Free to State Whether or Not They Would Re-Hire Current or Former Employee. Under prior law, employers were protected from libel or slander suits for statements made without malice regarding the job performance or qualifications of a current or former employee. The new law extends the protection from civil action to employers by specifically providing that an employer, if asked, may inform a prospective employer whether or not it would rehire an employee.

Electronic Data Security Breach. Employers that own or license computerized data containing personally identifiable information on employees or customers (such as Social Security Numbers) must notify employees of any security breach of electronic files containing information on their employees.

Working Conditions May No Longer Be Kept Secret. Under prior law, employers were prohibited from requiring employees to keep confidential the amount of their wages, or from taking adverse action based on any such disclosure. The new law extends this same protection to information about working conditions and prohibits employees from waiving their right to disclose such information. Under the new law, any adverse action based on these reasons is prohibited, whether or not it adversely affects an employee’s advancement in his or her job.

Workers compensation reforms. The workers compensation reforms package signed into law by former Governor Davis among other things, caps chiropractic and physical therapy visits at 24, sets a pharmaceutical fee schedule based on 100 percent of the Medi-Cal fee and establishes medical treatment guidelines. The state expects savings of about four billion dollars with the workers compensation reform. The Insurance Commissioner is also hoping for a four percent rollback in workers’ compensation insurance rates with the passage of the new law.

Leave for Victims of Crime. An employee who is a crime victim, or has an immediate family member, who is a crime victim, can take unpaid leave from work to attend judicial proceedings relating to the crime. This cannot be a cause for an employer to take any adverse employment action against the employee.

We expect to see challenges to some of these laws from the employer community in California, including a referendum later this year for the November ballot regarding the mandatory health coverage.

The new laws confirm California’s reputation as a tough place to do business, but the change in Sacramento may shift the momentum towards more employer friendly legislation in the coming years. It is however evident that employers have to pay more attention to compliance issues, provide ongoing human resource training, expert counseling and establish a comprehensive audit system.